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401(k) Started in year Simple Plan existed

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I was just referred into a client that has had a SIMPLE IRA plan for years. They told the broker who "helped them" establish a new Safe Harbor 401(k) Plan effective 1/1/12 that there weren't any plan contributions to the SIMPLE during 2012. It now appears that one employee deferred about $500 and had an accompaying employer match. I know that the SIMPLE needs to be the exclusive plan, but since the new 401(k) has already been established, that is now a moot point.


Can the employee deferrals with income be returned to the employee and the employer matching contribution with income be returned to the employer?

If the ee/er contributions can be returned, will there be any problem operating the 401(k) Plan normally for the 2012 Plan Year?

Thanks for the help,


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The good news is that the 401(k) is not tainted by the SIMPLE, it's the other way around. I'm not quite sure about how to handle the SIMPLE contributions, but I think I remember seeing something on the IRS website about how to fix. I don't think it's as simple as returning money - the investment company won't let money go out without issuing a 1099-R.

Ed Snyder

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According to the IRS website, ee/er contributions can be removed from the SIMPLE with 1099-R's being produced. In as much as the amount of money involved is small, I don't see this as a big deal. I just want to make sure that if the contributions are returned, the SIMPLE plan will not be put at any risk. I know that the 401(k) won't be affected. I read in Sal Tripodi's EOS that there is a risk that the SIMPLE plan could become "invalidated." He didn't go into any detail as to what that exactly means, but, it made me nervous enough to post the question.

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